WFS Q1 Bunker Margin Strengthens as Volumes Slip to Two-Year Low

Profits in WFS's marine business remain abnormally high despite a weakening global economy. Image Credit: Ship & Bunker / Data Credit: WFS

World Fuel Services, the world's second-largest supplier of marine fuels, saw its bunker margins strengthen at the start of 2023 while sales volumes dropped to a two-year low.

The firm reported income from marine operations of $30.8 million in the first quarter of this year, up from $23.1 million a year earlier but down from $31.5 million in Q4, it said in a results statement late on Thursday.

Gross profit from the marine segment was $52 million in Q1, up from $47 million a year earlier and down from $56 million in Q4.

The firm sold 4.3 million mt of bunker fuel in Q1, its lowest total since the first quarter of 2021. The figure was down from 4.7 million mt a year earlier and from 4.7 million mt in the previous quarter.

On a call with analysts on Thursday CFO Ira Birns cited a 'softening container market' as the main reason for the decline in marine volumes.

That left a profit margin on its Q1 bunker sales of $7.20/mt, up from $4.92/mt a year earlier and from $6.73/mt in Q4.

World Fuel saw significant growth from its bunker business last year as the war in Ukraine drove prices to record highs. The company saw its strongest margins in Q2, and while they have since declined from these record levels, the Q1 2023 margin remained abnormally high compared with the rest of the company's history over the past decade.

Weathering the Storm

On the analyst call CEO Michael Kasbar suggested the firm's financial strength and reduced costs meant it could continue to deliver a strong result from its marine business despite the weakening economic backdrop.

"On previous calls, I've emphasised our efforts over the last several years to sharpen our portfolio and maximize returns, which resulted in the reorganization of our marine business," Kasbar said.

"These actions have positioned our business to be able to weather the inevitable cyclicality of the global shipping industry through a lower cost structure that enables us to generate respectable financial returns in down markets, while preserving the ability to provide value in volatile and credit constrained markets, especially when demand strengthens.

"While the high fuel prices witness throughout much of 2022 began to ease in the first quarter of 2023, the marine business nevertheless benefited from the elevated interest-rate environment and continued fuel-price volatility, which together with our prudent allocation of working capital enabled marine to again deliver outstanding financial performance during the quarter.

"Both our aviation marine businesses have benefited from our ability to leverage our strength and stability as a preferred reliable counterparty to support our customers fuel and financial requirements amidst an increasingly constrained and costly credit environment, and a continued period of heightened supply and logistical uncertainly."

Birns said the firm expected to see continued strength in marine margins over the next few months.

"As we look ahead to the second quarter, margins are expected to remain well ahead of historical averages," he said.

"However, gross profit is expected to decline sequentially driven principally by flattening prices and reduce market volatility."